Share the Wealth

April 6, 2011

A serious conversation about managing the federal budget is under way. And that’s a good thing. Federal spending is growing faster than federal revenue. Absent changes in the law, future generations of Americans will likely have to raise taxes to unprecedented levels, dramatically reduce the reach of government programs, risk the macroeconomic consequences of uncontrolled debt, or some combination of all three. At best, these options are unappealing. At worst, they are a threat to prosperity.

But the fiscal conversation is unfolding in an unfortunate manner. For one thing, many in Washington seem to have lost sight of the fact that the economic recovery remains fragile and unemployment remains high. It is possible to believe that the deficit must eventually be addressed, while also believing that our present circumstances actually require deficit spending. As Joseph Stiglitz, the Nobel Prize-winning economist, wrote recently, “Just like it may pay for a business to borrow (‘run a deficit’) in order to increase long-run profitability, so too for government.”

Deficits should be temporary, of course. Once the economy fully recovers, the government really should focus on reducing debt. But that begs the question of how. Right now, the two poles of the debate are extremely conservative proposals, like the spending plan recently unveiled by House Budget Chairman Paul Ryan, and more centrist proposals, like the one endorsed by Erskine Bowles and Alan Simpson, co-chairmen of the president’s commission on deficit reduction. The result is a skewed discussion, where it seems to be a given that deficit reduction will take place primarily through spending cuts—and that those cuts, in areas ranging from housing assistance to food stamps, will frequently target the poorest Americans.

This is where liberals need to make a stand on principle. Balancing the budget is important; but so is creating a fair society in which all Americans have basic economic security. The fact is that much of the moral purpose of government spending is to redistribute income downward—to provide for the least successful and least fortunate members of society. It’s easy for that general principle to be lost in the detailed debates over which programs will be cut. But liberals shouldn’t run away from talking about this overarching commitment. On the contrary, it is something to be proud of.

What does this mean in practical terms? At the broadest level, it means debt reduction partially through higher taxes: allowing all of the Bush tax cuts to expire, while also adding new sources of revenue, ideally including some form of carbon tax (a measure which, in addition to helping to balance the government’s books, might have the added benefit of helping to save the planet). With Republicans in control of the House, these proposals may or may not be politically practical right now. And they aren’t necessarily popular. But liberals must continue to make the case for them, as both an economic and a moral matter.

Of course, there should be spending cuts as well. In fact, there should be plenty—and the bulk of them should come from health care. The skyrocketing costs of Medicare and Medicaid are the primary reasons the government’s fiscal picture is so bleak. Any strategy that does not slow the growth in these programs will fail. But the approach recently introduced by House Republicans, and embraced by many self-proclaimed fiscal hawks, is simply to slap limits on what the federal government spends on these programs—even if that means leaving seniors and low-income Americans without affordable medical care. That’s not controlling the cost of health care; that’s simply transferring the cost to people who can’t afford to bear it.

A smarter strategy would take a balanced approach, one that attempts to remedy the underlying inefficiencies making insurance so expensive. The Affordable Care Act introduces incremental versions of these reforms, like encouraging doctors to form integrated groups and creating an institute that will study which treatments work better than others. Going forward, the government could bolster these efforts and add some new ones, like a government-run insurance option for people under 65—a measure even the Bowles-Simpson commission acknowledges would help save money.

Why hasn’t anybody proposed these kinds of steps? Actually, some think tanks and economists, and even a few politicians, have. But it would be helpful if more Democrats spoke up on behalf of these ideas. The test of virtue in the fiscal debate is not simply whether politicians can balance the books. It’s whether they can balance the books in a way that provides for all Americans—including the least fortunate.

This article originally ran in the April 28, 2011, issue of the magazine.